Guest Post: Government Contracts and Constitutional Remedies – A Critique of the Unitech Decision

[This is a guest post by Sholab Arora.]


This article analyses the recent judgment of the Supreme Court in Unitech v. TSIIC [2021 SCC OnLine SC 99], delivered by a bench comprising of Justices D.Y. Chandrachud and M.R. Shah, from the jurisprudential vantage point of the settled principles of law concerning the following two issues:

i) Whether a writ petition is maintainable in cases wherein issues arise purely within the private law domain of contracts even though such contracts have been entered into by a governmental authority; and

ii) Whether in a writ petition, a relief seeking refund of money simpliciter from governmental authorities can be granted.

This article disagrees with, and critiques, the judgment. But before analyzing the ruling in Unitech, it is imperative to have a conceptual understanding of the principles of law governing the aforementioned issues.

Case Law on Writ Jurisdiction and Governmental Contracts: A Conspectus

The issue whether a writ petition is maintainable in cases concerning governmental contracts has had a seemingly chequered history and a perusal of the relevant judgments of the Supreme Court, at a facile level, would reveal that somewhat contradictory and ambiguous positions have been taken therein. However, a uniform and consistent jurisprudential thread can be discerned from the case law, whose inception can be traced to the Constitution Bench judgment in K.N. Guruswamy v. State of Mysore [AIR 1954 SC 592] and appears to be maintained until the Three Judge Bench judgment in State of U.P. v. Sudhir Kumar Singh [2020 SCC OnLine SC 847]. I argue that the ruling in Unitech substantially departs from the settled jurisprudential thread, while purporting to maintain consistency.

In Guruswamy, the Court held that if the procedure of allotment of tender by a governmental authority is not open and transparent, a writ can be granted. In D.F.O., South Kheri v. Ram Sanehi Singh [(1971) 3 SCC 864], the Court, after referring to Guruswamy, held that a writ petition is maintainable if the action challenged is that of a public authority invested with statutory power even though the relief sought arises out of an alleged breach of contract. In Radhakrishna Agarwal v. State of Bihar [(1977) 3 SCC 457], the Court, after referring to Erusian Equipment and Chemicals Ltd. v. State of West Bengal [(1975) 1 SCC 70], held that only those actions of a governmental authority (within the contractual domain) can be analyzed under Article 226 on the touchstone of Article 14 which are at the threshold, or at the time of entering into a contract. After a contract has been entered into and the parties have fully entered the contractual field, a governmental authority is not encumbered with any constitutional obligation. However, even after a contract has been entered into, statutory obligations of a governmental authority can still be enforced.     

Not substantially departing from the principles laid down in the aforementioned judgments, the Court in D.F.O. v. Bishwanath Tea Co. Ltd. [(1981) 3 SCC 238] held that in case an issue complained of is purely breach of contract, even though by a governmental authority, the writ jurisdiction of a High Court cannot be invoked and the only remedy is institution of a suit. Thereafter, in Gujarat State Financial Corp. v. Lotus Hotels (P) Ltd. [(1983) 3 SCC 379], the Court held that a writ of mandamus can be granted against a governmental authority for enforcement of a contractual obligation, if essentially what the petitioner is seeking is enforcement of a statutory duty. In a similar vein, the Court in Bareilly Development Authority v. Ajai Pal Singh [(1989) 2 SCC 116] held that the writ jurisdiction cannot be invoked after a contract has been entered into unless statutory obligations are sought to be enforced, that is to say, a writ petition is maintainable in cases of statutory contracts but not in cases of non-statutory contracts. Pertinently, the Court further held that the actions of a governmental authority cannot be assessed on the touchstone of constitutional provisions after a contract has been entered into, which was even reiterated in Mahabir Auto Stores v. Indian Oil Corporation [(1990) 3 SCC 752].

One can see three jurisprudential principles emerging from the case law development until 1990: first, a writ is not maintainable if the issue complained of is breach of contract simpliciter or if the relief sought is simply for enforcement of contractual obligation; second, a writ is maintainable if the contractual obligations of a governmental authority are ensconced within a larger statutory framework and what the petitioner essentially seeks is enforcement of statutory obligations [statutory contract – non-statutory contract dichotomy]; and third, a writ is maintainable if the petitioner claims that the actions of a governmental authority at the time of entering or not entering into a contract (but not thereafter) are violative of Article 14 [pre-contract – post-contract dichotomy].

In effect, expanding on the last of the aforementioned three principles, the Court in Sterling Computers Ltd. v. M/s M&N Publications Ltd. [(1993) 1 SCC 445] and Tata Cellular v. Union of India [(1994) 6 SCC 651] held that judicial review, on the touchstone of Article 14, has to be restricted to the decision making process concerning entering or not entering into a contract or allotment of tender and the same cannot be extended to the merits of the decision itself (which dictum was reiterated in Michigan Rubber (India) Ltd. v. State of Karnataka [(2012) 8 SCC 216]). Clarifying the second of the aforementioned three principles, the Court in Kerala SEB v. Kurien E. Kalathil [(2000) 6 SCC 293] held that “a contract would not become statutory simply because it is for construction of a public utility and it has been awarded by a statutory body” and that in itself will not raise an “issue of public law”. Thereafter, in State of Bihar v. Jain Plastics and Chemicals Ltd. [(2002) 1 SCC 216] and NHAI v. Ganga Enterprises [(2003) 7 SCC 410], the Court reiterated the first of the aforementioned three principles i.e. “writ is not the remedy for enforcing contractual obligations” and “disputes relating to contracts cannot be agitated under Article 226 of the Constitution of India”.

Then came the judgment in ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd. [(2004) 3 SCC 553] which muddied the jurisprudential waters. This judgment misconstrued the rulings in Guruswamy, Ram Sanehi Singh and Lotus Hotels (P) Ltd.  The Court in ABL International Ltd. held that “once the State or an instrumentality of the State is a party of the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution” and “a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable”. This dictum flies in the teeth of the aforementioned three jurisprudential principles as this dismantles both the statutory contract – non-statutory contract dichotomy and the pre-contract – post-contract dichotomy. This departure from the settled principles of law was continued in Noble Resources v. State of Orissa [(2006) 10 SCC 236]. However, it was clarified in Noble Resources that judicial review will be restrictive in cases of breach of contract unlike matters which are at the threshold of a contract.

Realizing that the ruling in ABL International inverted the settled principles, the Court in Joshi Technologies v. Union of India [(2015) 7 SCC 728] clarified and re-emphasized the pre-ABL International position, although in a new fashion. The Court in Joshi Technologies held as follows:

…in pure contractual matters the extraordinary remedy of writ under Article 226 or Article 32 of the Constitution cannot be invoked. However, in a limited sphere where such remedies are available only when the non-Government contracting party is able to demonstrate that it is a public law remedy which such party seeks to invoke, in contradistinction to the private law remedy simipliciter under the contract…if the matter is governed by a contract, the writ petition is not maintainable since it is a public law remedy and is not available in private law field, for example, where the matter is governed by a non-statutory contract…The Court may not examine the issue unless the action has some public law character attached to it…where the matter falls purely in private field of contract, this Court has maintained the position that writ petition is not maintainable” [public – private dichotomy].

Pertinently, the Court revives the first of the three jurisprudential principles discussed hereinbefore, and subsumes the second principle i.e. the statutory contract – non-statutory contract dichotomy within the public – private dichotomy. However, the Court departs from the third principle i.e. the pre-contract – post-contract dichotomy. Hence, even if a public law issue is raised subsequent to the formation of a contract whereto a governmental authority is a party and its actions are sought to be challenged, the same can be entertained in a writ petition.

The question arises: When can it be said that a public law issue is raised? The answer is: first, when the concerned contract is a statutory contract; or second, when the petitioner claims violation of Article 14 within the contractual domain. And, violation of Article 14 can only be claimed when the procedural due process is not followed – which is the position floated in Guruswamy (although not in very clear terms) and followed and strengthened in Sterling Computers Ltd., Tata Cellular and Michigan Rubber (India) Ltd. It is important to understand that Joshi Technologies maintains the jurisprudential thread which undergirded the position of law before ABL International. It merely spreads the Article 14 – procedural due process principle throughout the contractual field instead of restricting the same to matters at the threshold of a contract. The position on violation of Article 14 vis-à-vis procedural due process becomes more evident in the Three Judge Bench Judgment of Sudhir Kumar Singh wherein the Court held that Article 14 stood violated because the tender was cancelled by the concerned governmental authority by breaching the audi alteram partem rule.

Case Law on Writ Jurisdiction and Refund of Money: A Conspectus

The case law development on whether in a writ petition, a relief seeking refund of money simpliciter from governmental authorities can be granted has not witnessed such a tumultuous evolution like the previous issue this article dealt with. Rather, the development has been quite certain and consistent. In Burmah Construction Co. v. State of Orissa [AIR 1962 SC 1320], the issue that arose before the Constitution Bench was whether refund of tax unlawfully collected by the State could be sought in a writ petition under Article 226. The Court held that a writ petition is maintainable if the petitioner is essentially enforcing a statutory obligation on the part of the State or an officer of the State to refund the tax illegally collected. If the obligation to refund the tax illegally collected cannot be traced to a statutory provision, then the only remedy left is to file a suit. In Suganmal v. State of M.P. [AIR 1965 SC 1740], the Constitution Bench held that a writ petition solely for refund of money is not maintainable, however, the same can be entertained when refund of money is sought as a consequential relief. For instance, when the petitioner challenges an assessment order and succeeds. In such a case, the Writ Court can grant refund of money as a consequential relief. This ruling was followed in Salonah Tea Co. Ltd. v. Suptd. of Taxes [(1988) 1 SCC 401], U.P. Pollution Control Board v. Kanoria Industrial Ltd. [(2001) 2 SCC 549] and Godavari Sugar Mills Ltd. v. State of Maharashtra [(2011) 2 SCC 439] wherein the Court reiterated the “distinction between those cases where a claimant approaches a High Court seeking relief of obtaining refund only and those where refund is sought as a consequential relief after striking down of the order of assessment etc.” Even ABL International reiterates this principle of law.

There is, however, one judgment manifesting a departure from this settled principle of law i.e. Popatrao Vyankatrao Patil v. State of Maharashtra [Civil Appeal No. 1600 / 2020 (SC), Judgment dt. 14.02.2020]. In Popatrao, the appellant was the highest bidder in a public auction concerning excavation of a sand block. In pursuance of the allotment of the tender, the appellant submitted a sum of money with the government treasury, despite which, he was not put in possession of the concerned sand block. After trying his luck with the governmental authorities, the appellant filed a writ petition before the High Court seeking refund of the money deposited. The High Court refused to entertain the writ petition and relegated the appellant to a suit. On appeal, the Supreme Court held that the action of the State smacked of arbitrariness and was violative of Article 14, and granted the relief of refund. There are two issues with this judgment: first, the Court fails to realize that violation of Article 14 only arises within the contractual field when the procedural due process is not followed. Mere non-refund of money will not give rise to the same; and second, the Court ignores the settled principle of law that refund of money can only be directed in a writ petition when the same is sought as a consequential relief. Popatrao can only be considered as an aberration which gives rise to another aberration viz. Unitech.

Unitech v. TSIIC: An Analysis

In Unitech, the facts were that Unitech Ltd. was awarded the tender to develop, design and construct an integrated township project / multi services aerospace park on a particular land of about 350 acres [“subject land”] by Andhra Pradesh Industrial Infrastructure Corporation [“APIIC”], the predecessor-in-interest of Telangana State Industrial Infrastructure Corporation [“TSIIC”]. In pursuance of the allotment of the tender, Unitech Ltd. paid a sum of Rs. 165 crores. After the allotment of the tender, in a different litigation, it was held that the title and ownership of the subject land did not vest in the Government of Andhra Pradesh. Hence, the very foundation of the contract between Unitech Ltd. and APIIC / TPIIC stood eroded and the contract stood frustrated. As a result, Unitech Ltd. sought refund of the aforementioned sum of money, along with interest, from APIIC and TPIIC but in vain.

Thereafter, Unitech Ltd. invoked Article 32 jurisdiction seeking refund of money [W.P. (C) 302 / 2017]. The Court ordered that it was “not inclined to entertain the writ petition under Article 32 of the Constitution. However, the petitioners, if so advised, may approach the High Court under Article 226 of the Constitution” [Order dt. 01.05.2017]. Unitech Ltd. preferred a writ petition under Article 226 before the High Court, and both the Single Judge and the Division Bench granted the relief of refund, although differing on the interest amount. The matter approached the Supreme Court. Strangely, the Judgment records, the State of Telangana and TSIIC did not raise any objection as to maintainability of the writ petition under Article 226 or the entitlement of Unitech Ltd. to seek refund of money under Article 226. Be that as it may, the Judgment conducts an academic analysis on the issue of maintainability. The Court relies on ABL International, Sudhir Kumar Singh and Popatrao to hold that the writ petition in the instant case was maintainable and the High Court had rightly granted the relief of refund of money under Article 226.

To create a semblance of compliance with the public – private dichotomy, the Court’s purported justification is that there is a violation of Article 14 as the action of the State is arbitrary / unfair since “TSIIC, a state instrumentality, has not just reneged on its contractual obligation, but hoarded the refund of the principal and interest…” As we have seen, Article 14 violation has been restricted to cases where procedural due process was not followed by a governmental authority within the contractual domain. The same was the case in Sudhir Kumar Singh. The Court’s reliance on ABL International is misplaced as the pre-ABL International substantially stood revived in Joshi Technologies. Moreover, Popatrao is a mere aberration. If there was no allegation of non-compliance of procedural due process and the contract concerned was not a statutory contract, it is difficult to comprehend why the writ petition was held to be maintainable. Even if the Judgment is considered justifiable in expanding the scope of Article 14 violation in contractual matters, it clearly flies in the teeth of the settled principle of law that refund of money can only be claimed as a consequential relief in a writ petition, which was clearly not the case in Unitech. Therefore, it is humbly submitted that Unitech does not state the correct position of law and relies on the aberrational judgments, and as a consequence, muddies the jurisprudence on the subject.  

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